BCR Governor: Peru has recorded the region's lowest inflation so far this century

The panel was moderated by IMF Deputy Managing Director Nigel Clarke.

It brought together officials from Portugal, Papua New Guinea, Rwanda, and Peru to share experiences with successful economic reforms.

In his remarks, Velarde explained that Peru's current monetary policy framework was established following the hyperinflation of the late 1980s.

Autonomy

Among its key pillars, he highlighted the BCR's autonomy, consolidated in its 1992 Organic Law, which prohibits it from financing the Government or state development banks, or from establishing multiple exchange rates.

Velarde noted that Peru was the first country in Latin America to adopt a flexible exchange rate regime, which gave it greater flexibility to respond to economic shocks.

"In 2001, we established the explicit inflation-targeting scheme," he added.

Hyperinflation and dollarization

The BCR governor mentioned that during hyperinflation, our economy became dollarized. Thus, in order to reverse dollarization, it was important for us to have an inflation rate similar to that of the United States.

"But that was not enough, and it was established that prices should also be quoted in (Peruvian) soles," Velarde recalled.

Additionally, reserve requirements were introduced to reduce dollar-denominated lending in the banking system. 

As a result, the share of dollar-denominated loans fell from 81% in 2000 to 23% today, he noted.

The lowest inflation rate

The BCR governor noted that Peru has faced episodes of high uncertainty, such as the 2008 global financial crisis and the COVID-19 pandemic, during which having the right tools and the flexibility to respond has been key.

According to Velarde, this framework has enabled Peru to record the region's lowest inflation rate so far this century.

"Our core inflation has been below that of the United States this century," Velarde concluded.

(END) NDP/JJN/MVB